Encore Capital Group Announces Fourth Quarter and Full Year 2013 Financial Results; Diversifies and Expands Global Footprint - WDRB 41 Louisville News

Encore Capital Group Announces Fourth Quarter and Full Year 2013 Financial Results; Diversifies and Expands Global Footprint

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SOURCE Encore Capital Group, Inc.

- Full-Year Collections rise 35 percent to $1.3 Billion

- GAAP EPS of $2.94 for 2013

- Adjusted EPS increased 23 percent to $3.86 for 2013

- Extends footprint to Latin America with 51 percent purchase in Refinancia

- Agrees to acquire 68 percent of Grove Capital Management, a U.K purchaser and servicer of Individual Voluntary Arrangements (IVAs)

- Core credit facility extended five years and expanded to $846 million in commitments

- Completed convertible bond call spread, increasing strike price to $60 on 2017 convertible notes

SAN DIEGO, Feb. 25, 2014 /PRNewswire/ -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2013. In a series of related announcements, the Company stated that it has acquired a controlling interest in Refinancia, a debt buyer and market share leader in Colombia and Peru, and has entered into an agreement to acquire a controlling interest in Grove, a leader in the purchasing and servicing of Individual Voluntary Arrangements, or IVAs, in the U.K.

Encore Capital Group, Inc.

"2013 was a watershed year for Encore. We delivered outstanding financial and operational results and expanded into geographies and assets that will make us an even stronger and more diversified company," said Ken Vecchione, the Company's President and Chief Executive Officer. "There's no doubt that Encore is now positioned as one of the leading specialty finance companies anywhere in the world."

"At Encore, we are maintaining our focus on the disciplined execution of our growth strategies to continue to drive shareholder value. Our core business was strong, attaining record earnings, collections and operating cash flow for the year," said Vecchione.

"At the same time, we have significantly expanded our global footprint to the U.K. and Latin America through a series of strategic acquisitions." As we continue to evaluate the deployment of capital on a global basis, Encore is well positioned to capitalize on higher returns in a wide variety of world markets."

To support its growth plans, Encore also announced the expansion of its existing credit facility to $846 million, with an additional $250 million of capacity available under its accordion, bringing the total facility to $1.1 billion.

"The expansion to our facility will provide us with the capital necessary to advance our growth strategies. We appreciate the confidence that our lenders have shown by increasing their commitments, as well as the entrance of a number of new lenders to our facility.  With the additional commitments, we have more than $360 million of availability under our facility and an ability to expand that by an additional $250 million," said Paul Grinberg, Encore's Chief Financial Officer.

Grinberg also announced the completion of Encore's convertible bond call spread, moving the bond's strike price from $44.19 to $60.00. "The combination of the call spread and the extension of our credit facility affords management the opportunity and flexibility for future growth prospects," he said.

Financial Highlights for the Fourth Quarter of 2013:

  • Gross collections from the portfolio purchasing and recovery business were $351.3 million, a 52% increase over the $230.5 million in the same period of the prior year.
  • Investment in receivable portfolios in the portfolio purchasing and recovery business was $105.0 million, to purchase $1.032 billion in face value of debt, compared to $153.6 million, to purchase $8.5 billion in face value of debt in the same period of the prior year. 
  • Available capacity under Encore's revolving credit facility, subject to borrowing base and applicable debt covenants, was $257.9 million as of December 31, 2013.  Total debt was $1.85 billion as of December 31, 2013, compared to $706.0 million as of December 31, 2012.
  • Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $226.8 million, a 62% increase over the $139.6 million in the same period of the prior year.  Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, increased to approximately 63% from 59% in the same period of the prior year.
  • Total operating expenses were $168.5 million, a 62% increase over the $103.9 million in the same period of the prior year.  Adjusted Operating Expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, one-time charges, and acquisition related legal and advisory expenses) per dollar collected for the portfolio purchasing and recovery business decreased to 42.1% compared to 42.8% in the same period of the prior year.
  • Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time charges, and acquisition and integration related expenses), was $206.0 million, a 53% increase over the $134.7 million in the same period of the prior year.
  • Total interest expense for the portfolio purchasing and recovery segment increased to $29.7 million, as compared to $6.5 million in the same period of the prior year, reflecting the financing of our recent acquisitions.
  • Net income from continuing operations was $24.4 million, or $0.87 per fully diluted share, compared to net income from continuing operations of $20.2 million, or $0.79 per fully diluted share, in the same period of the prior year.
  • Adjusted Income from Continuing Operations (defined as net income from continuing operations excluding income attributable to the non-controlling interest in Cabot, non-cash interest and issuance cost amortization, one-time charges, and acquisition and integration related expenses, all net of tax) was $28.3 million, compared to adjusted income from continuing operations of $20.4 million in the same period of the prior year.
  • Adjusted for 1,041,000 shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes, Adjusted Income from Continuing Operations rose 31% to $1.05 per fully diluted share, compared to $0.80 per fully diluted share in the same period of the prior year.

Financial Highlights for the full year of 2013:

  • Gross collections were $1.28 billion, a 35% increase over the $948.1 million in 2012.
  • Investment in receivable portfolios in the portfolio purchasing and recovery business was $1.205 billion, to purchase $85.0 billion in face value of debt, compared to $562.3 million, to purchase $18.5 billion in face value of debt in 2012.
  • Revenue from receivables portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $744.9 million, a 37% increase over the $545.4 million in 2012.
  • Total operating expenses were $575.0 million, a 43% increase over the $401.7 million in 2012. Adjusted Operating Expenses per dollar collected for the portfolio purchasing and recovery business decreased to 39.1% compared to 40.0% in 2012.
  • Adjusted EBITDA was $784.3 million, a 36% increase over the $577.4 million in 2012.
  • Net income from continuing operations attributable to Encore was $77.0 million or $2.94 per fully diluted share, compared to $78.6 million or $3.04 per fully diluted share in 2012.
  • Adjusted Income from Continuing Operations was $98.8 million, compared to adjusted income from continuing operations of $81.3 million in 2012.
  • Adjusted for 595,000 shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes, Adjusted Income from Continuing Operations was $3.86 per fully diluted share, compared to $3.15 per fully diluted share in 2012.
  • Total stockholders' equity per share, excluding the effects of discontinued operations, was $21.98 at December 31, 2013, a 40% increase over $15.71 at December 31, 2012.

Conference Call and Webcast

The Company will hold a conference call today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss fourth quarter and full year results.

Members of the public are invited to listen to the event via a listen-only telephone conference call line or the Internet. To access the live telephone conference call, please dial (877) 670-9781 or (631) 456-4378. The Conference ID is 59637255. To access the live webcast via the Internet, log on at the Investors page of the Company's website at www.encorecapital.com.

Non-GAAP Financial Measures

This news release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company has included Adjusted Income from Continuing Operations per Share because management believes that investors rely on this measure to assess operating performance, in order highlight trends in the Company's business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company's revolving credit facility, in the evaluation of its operations and believes that this measure is a useful indicator of the Company's ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning Adjusted Operating Expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. Adjusted Income from Continuing Operations per Share , Adjusted EBITDA, and Adjusted Operating Expenses, have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of the Company's operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.

Encore Capital Group is an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans and purchases delinquent tax liens directly from select taxing authorities. Through its Cabot Credit Management subsidiary in the United Kingdom, the Company is a market-leading acquirer and manager of consumer debt in the United Kingdom and Ireland. Encore's success and future growth are driven by its sophisticated and widespread use of analytics, its broad investments in data and behavioral science, the significant cost advantages provided by its highly efficient operating model and proven investment strategy, and the Company's demonstrated commitment to conducting business ethically and in ways that support its consumers' financial recovery.

Headquartered in San Diego, Encore is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com

Forward Looking Statements

The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words "may," "believe," "projects," "expects," "anticipates" or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These statements may include, but are not limited to, statements regarding our future operating results, performance, business plans or prospects. For all "forward-looking statements," the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in the reports filed by the Company with the Securities and Exchange Commission, including the most recent reports on Forms 10-K, 10-Q, and 8-K, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:

Encore Capital Group, Inc.
Paul Grinberg (858) 309-6904
paul.grinberg@encorecapital.com

Adam Sragovicz (858) 309-9509
adam.sragovicz@encorecapital.com

FINANCIAL TABLES FOLLOW

 

 

ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)









 December 31, 
2013



 December 31, 
2012

Assets






Cash and cash equivalents

$

126,213


$

17,510

Investment in receivable portfolios, net


1,590,249



873,119

Deferred court costs, net


41,219



35,407

Receivables secured by property tax liens, net


212,814



135,100

Property and equipment, net


55,783



23,223

Other assets


154,783



31,535

Goodwill


504,213



55,446







Total assets(1)

$

2,685,274


$

1,171,340







Liabilities and stockholders' equity






Liabilities:






Accounts payable and accrued liabilities

$

137,272


$

43,909

Deferred tax liabilities, net


7,164



8,236

Debt


1,850,431



706,036

Other liabilities


87,936



7,343







Total liabilities(1)


2,082,803



765,524













Redeemable noncontrolling interest


26,564



-

Commitments and contingencies






Stockholders' equity:






Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding


-



-

Common stock, $.01 par value, 50,000 shares authorized, 25,457 shares and 23,191 shares issued and outstanding as of December 31, 2013 and December 31, 2012, respectively


255



232

Additional paid-in capital


171,819



88,029

Accumulated earnings


394,628



319,329

Accumulated other comprehensive gain (loss)


5,195



(1,774)







Total Encore Capital Group, Inc. stockholders' equity


571,897



405,816

Noncontrolling interest


4,010



-







Total stockholders' equity


575,907



405,816







Total liabilities, redeemable noncontrolling interest and stockholders' equity

$

2,685,274


$

1,171,340









(1)

The Company's consolidated assets as of December 31, 2013 included $1,106,538 of assets from its variable interest entity, or VIE, that can only be used to settle obligations of the VIE. These assets include cash and cash equivalents of $62,403; investment in receivable portfolios, net, of $620,312; property and equipment, net, of $13,755; other assets of $33,772; and goodwill of $376,296. The Company's consolidated liabilities as of December 31, 2013, included $895,792 of liabilities of its VIE, whose creditors have no recourse to the Company. These liabilities include accounts payable and accrued liabilities of $47,219; debt of $846,676; and other liabilities of $1,897.

 

 

ENCORE CAPITAL GROUP, INC

Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)



(Unaudited)
Three Months Ended
December 31,


Year Ended
December 31,


2013


2012


2013


2012

Revenues








Revenue from receivable portfolios, net

$    226,776


$     139,594


$     744,870


$    545,412

Other revenues

6,115


291


12,588


905

Net interest income

4,208


4,018


15,906


10,460









Total revenues

237,099


143,903


773,364


556,777









Operating expenses








Salaries and employee benefits

50,986


28,193


165,040


101,084

Cost of legal collections

49,265


45,500


186,959


168,703

Other operating expenses

20,531


10,085


66,649


48,939

Collection agency commissions

10,380


2,980


33,097


15,332

General and administrative expenses

32,284


15,467


109,713


61,798

Depreciation and amortization

5,020


1,647


13,547


5,840









Total operating expenses

168,466


103,872


575,005


401,696









Income from operations

68,633


40,031


198,359


155,081









Other (expense) income








Interest expense

(29,747)


(6,540)


(73,269)


(25,564)

Other income (expense)

40


37


(4,222)


808









Total other expense

(29,707)


(6,503)


(77,491)


(24,756)









Income from continuing operations before income taxes

38,926


33,528


120,868


130,325

Provision for income taxes

(15,278)


(13,361)


(45,388)


(51,754)









Income from continuing operations

23,648


20,167


75,480


78,571

Loss from discontinued operations, net of tax

(1,432)


-


(1,740)


(9,094)









Net income

22,216


20,167


73,740


69,477









Net loss attributable to noncontrolling interest

737


-


1,559


-









Net income attributable to Encore Capital Group, Inc. stockholders

$  22,953


$   20,167


$   75,299


$  69,477









Amounts attributable to Encore Capital Group, Inc.:








Income from continuing operations

$  24,385


$   20,167


$   77,039


$  78,571

Loss from discontinued operations, net of tax

(1,432)


-


(1,740)


(9,094)









Net income

$  22,953


$   20,167


$   75,299


$  69,477









Earnings (loss) per share attributable to Encore Capital Group, Inc.:








Basic earnings (loss) per share from:








Continuing operations

$       0.95


$       0.82


$        3.12


$       3.16

Discontinued operations

$     (0.05)


$           -


$      (0.07)


$     (0.36)









Net basic earnings per share

$       0.90


$       0.82


$        3.05


$       2.80









Diluted earnings (loss) per share from:








Continuing operations

$       0.87


$       0.79


$        2.94


$       3.04

Discontinued operations

$     (0.05)


$           -


$       (0.07)


$     (0.35)









Net diluted earnings per share

$      0.82


$       0.79


$       2.87


$      2.69









Weighted average shares outstanding:








Basic

25,645


24,639


24,659


24,855

Diluted

28,141


25,565


26,204


25,836

 

 

ENCORE CAPITAL GROUP, INC

Consolidated Statements of Cash Flows

(In Thousands)





Year Ended December 31,


2013


2012


2011

Operating activities:






Net income

$     73,740


$     69,477


$     60,958

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization

13,547


5,840


4,661

Impairment charge for goodwill and identifiable intangible assets

-


10,400


-

Amortization of loan costs and premium on receivables secured by tax liens

6,715


3,268


1,833

Stock-based compensation expense

12,649


8,794


7,709

Recognized loss on termination of derivative contract

3,630


-


-

Deferred income taxes

(28,188)


(7,474)


(1,917)

Excess tax benefit from stock-based payment arrangements

(5,609)


(4,123)


(5,101)

Loss on sale of discontinued operations

-


2,416


-

(Reversal) provision for allowances on receivable portfolios, net

(12,193)


(4,221)


10,823

Changes in operating assets and liabilities






Deferred court costs and other assets

(11,697)


2,893


(4,169)

Prepaid income tax and income taxes payable

(468)


7,060


6,495

Accounts payable, accrued liabilities and other liabilities

22,649


4,190


3,287







Net cash provided by operating activities

74,775


98,520


84,579







Investing activities:






Cash paid for acquisition, net of cash acquired

(449,024)


(186,731)


-

Purchases of receivable portfolios, net of put-backs

(249,562)


(559,259)


(383,998)

Collections applied to investment in receivable portfolios, net

546,366


406,815


301,474

Originations and purchases of receivables secured by tax liens

(116,960)


(34,036)


-

Collections applied to receivables secured by tax liens

70,573


35,706


-

Purchases of property and equipment

(13,423)


(6,265)


(5,564)

Other

(5,210)


-


-







Net cash used in investing activities

(217,240)


(343,770)


(88,088)







Financing activities:






Payment of loan costs

(17,207)


(12,359)


(840)

Proceeds from credit facilities

659,940


508,399


121,000

Repayment of credit facilities

(630,163)


(289,673)


(143,000)

Proceeds from senior secured notes

151,670


-


25,000

Repayment of senior secured notes

(13,750)


(2,500)


-

Proceeds from issuance of convertible senior notes

172,500


115,000


-

Repayment of preferred equity certificates

(39,743)


-


-

Purchases of convertible hedge instruments

(32,008)


(22,669)


-

Proceeds from sale of warrants

-


11,028


-

Repurchase of common stock

(729)


(49,270)


-

Proceeds from exercise of stock options

4,442


1,847


1,263

Taxes paid related to net share settlement of equity awards

(9,591)


(2,969)


(3,891)

Excess tax benefit from stock-based payment arrangements

5,609


4,123


5,101

Repayment of capital lease obligations

(4,990)


(6,244)


(3,982)







Net cash provided by financing activities

245,980


254,713


651







Net increase (decrease) in cash and cash equivalents

103,515


9,463


(2,858)

Effect of exchange rate changes on cash

5,188


-


-

Cash and cash equivalents, beginning of period

17,510


8,047


10,905







Cash and cash equivalents, end of period

$   126,213


$     17,510


$        8,047







Supplemental disclosures of cash flow information:






Cash paid for interest

$     50,181


$     25,218


$     19,038

Cash paid for income taxes

66,759


46,297


32,125

Supplemental schedule of non-cash investing and financing activities:






Fixed assets acquired through capital lease

$        5,011


$        5,287


$        2,949

 

 

ENCORE CAPITAL GROUP, INC

Supplemental Financial Information

 

Reconciliation of Adjusted Income From Continuing Operations to GAAP Net Income From Continuing Operations, Adjusted EBITDA to GAAP Net Income, and Adjusted Operating Expenses For The Portfolio Purchasing And Recovery Business to GAAP Total Operating Expenses

(In Thousands, Except Per Share amounts) (Unaudited)




Three Months Ended December 31,


2013


2012


$


Per Diluted
Share -
Accounting


Per Diluted
Share -
Economic


$


Per Diluted
Share -
Accounting


Per Diluted
Share -
Economic

GAAP net income from continuing operations attributable to Encore, as reported

$    24,385


$      0.87


$      0.90


$  20,167


$       0.79


$      0.79

Adjustments:












Convertible notes non-cash interest and issuance cost amortization, net of tax

1,185


0.04


0.05


191


0.01


0.01

Acquisition related legal and advisory fees, net of tax

2,770


0.10


0.10


-


-


-













Adjusted income from continuing operations attributable to Encore

$    28,340


$      1.01


$      1.05


$  20,358


$       0.80


$      0.80



















Year Ended December 31,


2013


2012


$


Per Diluted
Share -
Accounting


Per Diluted
Share -
Economic


$


Per Diluted
Share -
Accounting


Per Diluted
Share -
Economic

GAAP net income from continuing operations attributable to Encore, as reported

$    77,039


$      2.94


$      3.01


$  78,571


$       3.04


$      3.04

Adjustments:












Convertible notes non-cash interest and issuance cost amortization, net of tax

3,274


0.12


0.13


191


0.01


0.01

Acquisition related legal and advisory fees, net of tax

12,981


0.50


0.51


2,567


0.10


0.10

Acquisition related integration and severance costs, and consulting fees, net of tax

3,304


0.13


0.13


-


-


-

Acquisition related other expenses, net of tax

2,198


0.08


0.08


-


-


-













Adjusted income from continuing operations attributable to Encore

$    98,796


$      3.77


$      3.86


$  81,329


$       3.15


$      3.15

























 







Three Months Ended December 31,


Year Ended December 31,


2013


2012


2013


2012

GAAP net income, as reported

$      22,216


$      20,167


$      73,740


$      69,477

Adjustments:








Loss from discontinued operations, net of tax

1,432


-


1,740


9,094

Interest expense

29,747


6,540


73,269


25,564

Provision for income taxes

15,278


13,361


45,388


51,754

Depreciation and amortization

5,020


1,647


13,547


5,840

Amount applied to principal on receivable portfolios

124,520


90,895


534,654


402,594

Stock-based compensation expense

3,486


2,084


12,649


8,794

Acquisition related legal and advisory fees

4,260


-


20,236


4,263

Acquisition related integration and severance costs, and consulting fees

-


-


5,455


-

Acquisition related other expenses

-


-


3,630


-









Adjusted EBITDA

$     205,959


$     134,694


$     784,308


$     577,380


















Three Months Ended December 31,


Year Ended December 31,


2013


2012


2013


2012

GAAP total operating expenses, as reported

$     168,466


$     103,872


$    575,005


$    401,696

Adjustments:








Stock-based compensation expense

(3,486)


(2,084)


(12,649)


(8,794)

Operating expenses related to non-portfolio purchasing and recovery business

(12,755)


(3,092)


(36,511)


(9,291)

Acquisition related legal and advisory fees

(4,260)


-


(20,236)


(4,263)

Acquisition related integration and severance costs, and consulting fees

-


-


(5,455)


-









Adjusted operating expenses

$     147,965


$      98,696


$    500,154


$     379,348









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